Comments on: Lotteries: A sucker’s game or a rational choice?

By: David Annis

David Annis — Fri, 28 Aug 2009 20:12:41 +0000

Tonight’s Mega Millions is a case where it seems the odds are in the player’s favor.
“The odds of winning the prize, the second-biggest in North American lottery history, are about 1 in 176 million. It’s worth about $210.4 million if the winner chooses to be paid in one lump sum instead of annual installments.”
(from http://www.bloomberg.com/apps/news?pid=20601103&sid=aitwmwHXxGpU )
David

By: noisician

noisician — Mon, 08 Jun 2009 01:51:04 +0000

my 2 cents:
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sure, i grant #4 – there are sometimes unusual situations where the odds turn in the gambler’s favor. fine, “professional” gamblers who work out the odds, game the system as much as possible, and buy tickets only when the odds are in their favor (and possibly buy large blocks of tickets to cover every #) don’t fall into the “tax on the stupid” category. but this person is not who we’re talking about. he is not the typical lottery player or a person who buys tickets on a regular basis.
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the rest of the arguments are even less convincing.
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#1 – even if we grant your assertion that insurance is a bad investment, this doesn’t somehow make gambling on lottery tickets a good investment! you MIGHT have an argument that insurance is as stupid as the lottery, but you’d need to present more info.
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#2 – please. this is why lottery is called tax on the stupid. people start thinking about spending all that prize money and they get stupid! … if you’re into wishful thinking, i’ve got another great way for you to spend your money: go to church every Sunday and donate whatever you didn’t gamble away, and then think about all the good blessings the magic sky fairy will be sending your way! entertaining!
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#3 – this is a rationalization to make you feel better about your poor decision to blow a lot of cash on gambling, NOT a motivation to gamble.
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(sorry if i came off harsh, i’m just cranky tonight.)
—

By: David Annis

David Annis — Fri, 05 Jun 2009 18:04:05 +0000

Humanity,

I understand the concern that the lottery is essentially a regressive tax.

I would like to see better investment vehicles made available and advertised to the poor so they don’t use the lottery as an alternative to traditional investment vehicles.

However, I don’t want to patronize the poor by shielding them from bad choices. Certainly they buy all sorts of things that I would not approve of: toy guns, cigarettes, whiskey, real guns, Twinkies, and Frosted Flakes, but we can’t all spend ideally. We all make many bad choices in life. In addition to my lotto habit I have a weakness for Little Debbie Nutty bars and I spend money on toys my kids don’t really need. If I were poor I’d want to be able to continue to indulge my weaknesses.

David

By: Humanity Blues

Humanity Blues — Fri, 05 Jun 2009 06:30:44 +0000

Some well put points. That being said, and I don’t want to come off as judgmental here, but I notice a lot of poor people at gas stations waste $20 dollars at a time buying lotto tickets and I’m pretty sure they’re wasting their money. Regardless, I guess it’s their choice. I buy a lottery ticket about once a month. It’s funny. I always feel deep down I’m gonna win even though there’s such a horrible probability in my favor.

By: David Annis

David Annis — Wed, 03 Jun 2009 13:52:13 +0000

Dave,

My answer above was a bit flippant. It assumed that you bought one of each ticket in a break even drawing and deducted the losses on the losing tickets. The truth is that the real world is more complex, so you have a valid point. I’ve tried to do a quick set of rough calculations below that account for income taxes.

In the real world, I am unlikely to play all numbers in a drawing. Gambling losses are only deductible only to the extent that they are offset by winnings and losses can not be carried forward to a future year. So, in any given year I’ll not be able to deduct most of my losses. The truth is that I don’t deduct any of my losses – perhaps I should.

Winnings under $600 aren’t reported to the IRS and nobody claims them, even though we are supposed to. So, we can assume for a typical ticket 21.5% is returned tax free. That leaves 78.5% that will be taxed. If we assume that we pay roughly 33% in income taxes that means we lose 25.9% of wagers to taxes – making the break even jackpot rise to about $23.8 million.

David

By: David Annis

David Annis — Tue, 02 Jun 2009 20:59:35 +0000

In theory, it doesn’t matter – gambling losses are deductible, so if we played all of the numbers at a break even jackpot, the losses and the gain would cancel out – net tax liability zero. In practice, I’d like to have the problem of only having bought one ticket and having the tax liability for the jackpot.

David

By: dave

dave — Tue, 02 Jun 2009 20:18:09 +0000

“Using these rough odds, it pays to buy a ticket when the prize exceeds $17.6 million.”

Did you adjust for taxation?

By: Rob Steenwyk

Rob Steenwyk — Tue, 02 Jun 2009 00:06:13 +0000

Sal, I hardly find this article retarded, I find it very interesting. In my opinion, this site should not just be about showing the implausibility of Big Foot, but also about the every day things we don’t even think to question. There are thousands of articles out there on why the evidence supporting Big Foot (or insert big topic here) is not valid, but taking a look at the lotto? Not so much.

Excellent work David, keep it up.

By: David Annis

David Annis — Mon, 01 Jun 2009 17:45:42 +0000

Sal,

I’m sorry that you didn’t find the article amusing. I wrote it because I have been told on more than one occasion that I am stupid to play the lottery and because I believe that it is important to challenge conventional wisdom about things other than religion and hostility to science.

Not that I think that the article is perfect; I really simplified the calculation of the odds of splitting a prize – because there are a huge number of variables that go into accurately calculating the real odds. To do it right, you need to account for increasing sales as jackpot sizes increase, the size of prizes in alternate games, the fact that humans don’t really pick numbers randomly, and many other variables.

David

By: Andy Kaiser

Andy Kaiser — Mon, 01 Jun 2009 13:41:20 +0000

In counterpoint to Sal, I liked this one a lot. I’d always been exactly like David described at the beginning – thinking that those who play lotteries are paying a “stupid tax”.

This article changed my mind.

It was, frankly, enlightening to consider all points of playing a lotto, including odds calculation for when it’s mathematically a good deal to play.

Andy

By: Navin Kumar

Navin Kumar — Mon, 01 Jun 2009 07:32:01 +0000

Chill Sal,

It’s articles like this that point out that one shouldn’t be only skeptical of Canonized Debate Topics. It’s worth remembering that there’s hidden value everywhere.

Fun article.

By: Sal Governale

Sal Governale — Mon, 01 Jun 2009 04:58:39 +0000

This was retarded. What’s next? A skeptical look at whether or not a tramp stamp tattoo is a wise choice?